Over the past year, there have been major changes to
Canada's export controls and economic sanctions regimes that
will have a significant impact on companies doing business abroad
during 2018 and beyond. Firms will need to familiarize themselves
with these changes and, if they have not already, ensure they are
incorporated into their compliance polices and controls. More than
ever before, companies should carefully track and monitor the
parties they have direct and indirect dealings with and where their
products and technology end up.

This article begins with a summary of parliamentary
recommendations to improve Canada's sanctions regime, and then
launches into reforms that have already taken shape, such as the
creation of a publicly-accessible sanctions database and the
adoption of a new Magnitsky Law. Second, it discusses recent
updates to Canada's export controls and economic sanctions
laws. Third, we explore Canada's preparations to join the Arms
Trade Treaty with Bill C-47, including expected developments in
2018.

(1) Parliamentary Committee Proposes Sanction Regime
Reforms

On April 6, 2017, the Standing Committee on Foreign Affairs and
International Development (the
"Committee") issued a Report entitled
"A Coherent and Effective Approach to Canada's Sanctions
Regimes: Sergei Magnitsky and Beyond" (the
"Report").1 The Report is a
result of a year-long comprehensive parliamentary review of
Canada's economic sanctions regime. Over the course of 13
meetings, the Committee heard 43 witnesses, including government
officials, academics, practitioners, victims and their relatives,
and scrutinized numerous written briefs and other documents.

In the Report, the Committee noted the extreme complexity of
Canada's sanctions regime and the very significant challenges
facing Canadian banks, exporters and others seeking to do business
abroad, acknowledging that multiple legislative acts, regulations
and actors often cause confusion for compliance and enforcement.
The Committee found that more government guidance was necessary to
fight over-compliance – companies often take a conservative
and cautious approach, leading to increased costs and a negative
impact on export business. Ultimately, the Report makes 13
recommendations for reform that are detailed below, some of which
have already been adopted.

(a) Committee makes 13 recommendations for reform

As a result of this extensive study, the Committee came up with
13 recommendations to improve the effectiveness of Canada's
sanctions regime. The recommendations are that the Government of
Canada should:

ensure that sanctions imposed using
more than one of the United Nations Act
("UNA")2, the Special
Economic Measures Act
("SEMA")3 or the Export
and Import Permits Act
("EIPA")4 are imposed in a
complementary and coherent manner, and amended concurrently when
necessary;

implement the decisions of the United
Nations Security Council regarding its mandated sanctions regimes
through the timely enactment, amendment, and repeal of regulations
under the UNA;

properly resource and reform the
structures responsible for its sanctions regimes, in order to
effectively impose sanctions on targeted states and persons;

provide comprehensive, publically
available, written guidance to the public and private sectors
regarding the interpretation of sanctions regulations in order to
maximize compliance;

produce and maintain a comprehensive,
public and easily accessible list of all individuals and entities
targeted by Canadian sanctions containing all information necessary
to assist with the proper identification of those listed;

transfer responsibility for the
issuance of permits under the SEMA and the UNA to the section of
Global Affairs Canada that already issues similar permits under the
EIPA, i.e., the Export Controls Division;

ensure that law enforcement agencies
highly prioritize the enforcement of sanctions measures and are
given the necessary resources to fulfil their duties;

amend SEMA and the Freezing
Assets of Corrupt Foreign Officials Act
("FACFOA")5 to allow for an
independent administrative process by which individuals and
entities listed under these Acts can challenge such listings in a
transparent and fair manner;

provide a clear rationale for the
listing and delisting of persons under SEMA and ensure that the
information is easily accessible to the public through the Global
Affairs Canada sanctions website;

amend SEMA to require the production
of an annual report by the Minister of Foreign Affairs, to be
tabled in each House of Parliament within six months of the fiscal
year end, which would detail the objectives of all orders and
regulations made pursuant to SEMA and actions taken for their
implementation;

amend SEMA and FACFOA to require a
mandatory legislative review of this legislation by a parliamentary
committee within five years of the amendments becoming law;

in honour of Sergei Magnitsky, amend
SEMA to expand the scope under which sanctions measures can be
enacted, including in cases of gross human rights violations;
and

amend the Immigration and Refugee
Protection Act ("IRPA")6
to designate all individuals listed by regulations under SEMA as
inadmissible to Canada.7

In the Report, the Committee emphasised that Canada's
sanctions laws should be consistent, easily-accessible, and
sufficiently clear so as to avoid over-compliance. Additionally,
the Committee wanted to ensure that a clear rationale was provided
for listing and delisting of persons, and that targeted persons may
defend themselves on procedural fairness grounds. While this client
alert does not propose to review each of the 13 recommendations
listed above in detail, below we elaborate on key recommendations
that have already been adopted.

(b) Minister Freeland's response to the Report

Canada's Minister of Foreign Affairs, Chrystia Freeland,
responded to the Report in a public letter dated July 17,
2017.8 In her response, Minister Freeland emphasizes to
importance of economic sanctions as a strategic foreign policy tool
and focused primarily on the recommendation to expand the use of
sanctions measures in the context of gross human rights violations
through the Magnitsky Law, described below. She also recognized
potential improvements to the processes and structures for
administering and operating economic sanctions, including through
the use of a consolidated list, also described below.

(c) Canada publishes Consolidated SEMA Sanctions List

On October 13, 2017, Global Affairs Canada published an online
tool, known as the "Consolidated SEMA Sanctions
List", that can be used by members of the public to
search for individuals and entities named in the schedules of
sanctions regulations made under SEMA. The Committee proposed the
creation of a "consolidated list of persons targeted by
sanctions" as "Recommendation 5" in the Report.
Although the Committee's objective was to create consolidated
lists similar to those in Australia, the EU and the US, the
Committee did not specify whether that consolidated list should
include SEMA sanctions only or sanctions under other legislation,
such as FACFOA or the Magnitsky Law.

The Consolidated SEMA Sanctions List was primarily driven by the
Committee's desire to make Canada's sanctions regime more
streamlined and accessible. The Committee found that vagueness as
to the scope of the restrictions and their exemptions has led to
over-compliance, which not only increases the cost of regulatory
compliance, but also can have the effect of a quasi-blanket embargo
for certain regions and entities. The Committee suggested that a
consolidated list would lessen compliance costs and reduce
over-compliance.

Although the adoption of a Consolidated SEMA Sanctions List is a
step forward, users must be aware of three primary limitations.
First, despite being "consolidated", the Consolidated
SEMA Sanctions List does not cover sanctions issued under the
JVCFOA, FACFOA, the Criminal Code, or the UNA. The Office
of the Superintendent of Financial Institutions
("OSFI") maintains unofficial separate
consolidated lists for sanctions issued under each of the
Criminal Code, terrorism-related regulations, and FACFOA.
The Secretariat of the United Nations Security Council maintains a
consolidated list for individuals and entities subject to sanctions
measures imposed by the Security Council. Additional trade and
travel restrictions are set out in the EIPA and IRPA.

Second, although the Consolidated SEMA Sanctions List is a
helpful administrative tool, it does not have the force of law and
should not be relied upon as a legal authority. Users reviewing
this list should always make sure it is the current version,
cross-check against the sanctions' legal authority, and
consider relationships with related legislation. Further, because
the consolidated list does not provide any guidance on what
companies may be owned or controlled by listed persons, companies
are still responsible for undertaking significant due diligence on
their counterparties in this regard.

Third, there have already been errors in creating this list from
the existing SEMA regulations. For example, the Russian entity
designated under Schedule II of the Special Economic Measures
(Russia) Regulations, "Sberbank" is incorrectly
named as "Sperbank" in the Consolidated SEMA Sanctions
List. There may be other such typographical errors –
especially where a person is named in a language which is
transcribed into English imprecisely (such as with Arabic or
Russian), which allows for different derivations of a common
name.

(d) Canada adopts Magnitsky Law and amends SEMA

On October 18, 2017, Canada adopted the Justice for Victims
of Corrupt Foreign Officials Act
("JVCFOA")9, which,
along with amendments to SEMA expands the scope under which
sanctions can be enacted against states, entities or individuals,
including in cases of gross human rights violations and significant
corruption. The JVCFOA is known as Canada's
"Magnitsky Law", named after
anti-corruption lawyer, Sergei Magnitsky, who discovered Russian
officials' embezzlement of state funds amounting to $230
million USD and soon after was arrested, tortured, and died in a
Russian prison.

The Committee suggests at "Recommendation 12" of the
Report that Canada amend SEMA to "allow for the expanded use
of sanctions against human rights violators".10 In
response, not only did the Government of Canada amend SEMA, but it
also adopted the JVCFOA as entirely new legislation to demonstrate
their commitment human rights protection as part of Canada's
foreign policy strategy.

The JVCFOA now allows Canadian officials to deny visas for and
freeze assets of foreign nationals that are involved in gross
violations of internationally recognized human rights or are public
officials or associates who are responsible for or complicit in
acts of significant corruption. The federal government has already
adopted regulations under the JVCFOA to place asset freezes on 52
officials from Russia, Venezuela, and South Sudan, including
Venezuelan President Nicolás Maduro Moros.

(2) Updates to Canadian export controls and sanctions

During 2017, Canada's existing export control and economic
sanctions regimes saw several amendments, the most significant of
which are summarized below.

(a) Additions to SEMA regulations

On April 14, 2017, Minister Freeland announced amendments to the
Special Economic Measures (Syria) Regulations, enacted
under SEMA,to list 27 additional individuals who are now subject to
an asset freeze and dealings prohibition.11 The persons
listed are high-ranking officials in the Assad regime.

On September 22, 2017, Minister Freeland, announced sanctions
against 40 Venezuelan officials and individuals who have played a
key role in undermining the security, stability and integrity of
democratic institutions of Venezuela in the Special Economic
Measures (Venezuela) Regulations, enacted under SEMA.
12 These regulations impose asset freezes and dealings
prohibitions with or for the benefit of listed persons, although
certain exemptions apply.

(b) New Version of the Export Controls Guide

On August 11, 2017, a new version of the Guide to Canada's
Export Control List (the "Guide") came
into effect.13 The new version of the Guide, now
referred to as the "December 2015 version", bring
Canada's export control regime into compliance with its
international obligations as of December 31, 2015.14

The Guide lists the goods and technology subject to export and
technology transfer controls and reflects many new additions,
deletions and clarifications. The transfer from Canada of any items
listed in the Guide must be made under the authority of an export
permit, including transfers via physical export, telephone
discussions, email, server access, upload and download, technical
assistance and services, and other forms of information
transmission.

Companies doing business abroad, whether in connection with
sales, sourcing or research and development, should be carefully
reviewing the latest changes to the Guide to ensure full compliance
with Canada's export control regime.

(c) Addition to Automatic Firearms Country Control List

On December 13, 2017, Canada announced that Ukraine will be
added to the Automatic Firearms Country Control List
("AFCCL"), enacted under the
EIPA.15 In October 2017, Canada also considered and
began consultations for adding Mexico and Japan to the AFCCL;
however, to date Ukraine is only new addition.16

The EIPA requires that a person, prior to a shipment, obtain an
export permit from the Minister of Foreign Affairs to export from
Canada an item that is found on the Export Control List. Since the
EIPA contains strict controls on the export of firearms, weapons
and devices defined as prohibited in the Criminal Code of
Canada, the AFCCL is an additional export control measure that
prohibits export of automatic firearms unless the country of
end-use is listed on the AFCCL.17

Currently the AFCCL lists 40 countries, including Ukraine.
Global Affairs Canada continues to evaluate export permit
application on a case-by-case basis, and does not automatically
grant export permits where the destination country is listed on the
AFCCL.

(3) Canada Prepares to Join Arms Trade Treaty

On April 13, 2017, the Canadian government announced its
commitment to accede to the Arms Trade Treaty and introduced Bill
C-47, An Act to amend the Export and Import Permits Act and the
Criminal Code (amendments permitting the accession to the Arms
Trade Treaty and other amendments ("Bill
C-47").18 The Arms Trade Treaty is a
multilateral treaty that regulates the international trade in
conventional weapons that entered into force on December 24,
2014.

Most significantly, Bill C-47 proposes the creation of a
Brokering Control List comprised of certain Export Control List
goods and technology the brokering of which is prohibited unless
authorized by a permit. Brokering is a new concept in Canadian
export control law and refers to the arranging or negotiating of a
transaction that relates to the movement of Brokering Control List
goods or technology from one foreign country to another foreign
country, including by way of acquisition, disposition or
disclosure. Bill C-47 passed second reading in the Canadian House
of Commons on October 3, 2017 and has been referred to the
Committee. A revised version of the Bill C-47 with commentary from
the Committee is expected in early 2018.

Conclusion

2017 was busy year for changes to Canada's export controls
and economic sanctions regimes, complete with a major parliamentary
committee report, adoption of the Magnitsky Law, launch of a new
Consolidated SEMA Sanctions List, additions to the SEMA
regulations, a new version of the Export Controls Guide, additions
to the Automatic Firearms Country Control List, and progress on
Bill C-47 regarding the Arms Trade Treaty. Still, the Government of
Canada has more work to do if it is to accomplish the balance of
the Committee's recommendations for a more transparent and
efficient economic sanctions regime.

In 2018, we expect to see further efforts to implement
recommendations in the Report, including improvements to the
Consolidated SEMA Sanctions List. Further progress on Bill C-47 is
expected in early 2018, particularly with the creation of a
Brokering Control List and associated permitting process. Over the
next year, companies should stay apprised of these fast-paced
changes to Canada's export controls and economic sanctions
regimes and how they will impact their business abroad.

At the present time, in addition to its export and technology
transfer controls, Canada imposes trade controls of varying degrees
on activities involving the following countries (and over 2,000
listed entities and individuals associated with them): Burma
(Myanmar), the Central African Republic, the Crimea Region of
Ukraine, Cuba, the Democratic Republic of the Congo, Eritrea,
Guinea, Iran, Iraq, Lebanon, Libya, North Korea, Pakistan, Russia,
Somalia, South Sudan, Sudan, Syria, Tunisia, Ukraine, Venezuela,
Yemen and Zimbabwe. Any involvement of these countries or any
listed person (or entities they own or control) in proposed
transactions or other activities should raise a red flag for
further investigation to ensure compliance with export and
technology transfer controls and economic sanctions.

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